It’s been a long year but we survived it. The elections are over and the world is looking ahead to see what emerges and evolves.

As you might expect all the industry associations have published congratulatory statements to president-elect Donald Trump. I have participated in a Wells Fargo webinar that looked at the some of the possibilities we could expect in the coming year under a new administration. The projections are positive especially for our infrastructure.

The following is a statement by Norma Jean Mattei, Ph.D., P.E., F. SEI., F. ASCE, president of the American Society of Civil Engineers (ASCE), on the election of Donald J. Trump as the next President of the United States:

“The American Society of Civil Engineers (ASCE) congratulates President-elect Trump upon his election and urges prompt action on his ambitious plan to repair and modernize our nation’s infrastructure and foster economic growth. Infrastructure is the very backbone of our nation’s economy, yet ASCE’s 2013 Report Card for America’s Infrastructure gave the nation’s infrastructure a cumulative grade of ‘D+.’ An economic study we released earlier this year found that the U.S. is on track to invest only half of what is needed in infrastructure over the next decade. A continued failure to act will result in significant consequences for our economy and for American families, who lose $3,400 a year due to aging infrastructure.

“If invested wisely, President-elect Trump’s proposed $1 trillion investment in infrastructure represents an important step toward closing the investment gap to raise the grade and achieve a globally competitive American infrastructure system fit for the 21st century. ASCE and its 150,000 members call on President-elect Trump and the 115th Congress to prioritize infrastructure repair, replacement, and modernization, to improve our economy, public health, and safety, so that every family, community, and business can thrive.”

The American Road & Transportation Builders Association (ARTBA) President & CEO Pete Ruane Statement on the Election of Donald Trump:

Pete Ruane

“President-elect Trump will have a ‘can do’ industry as his partner in rebuilding and expanding the nation’s transportation infrastructure to make it again second to none. Give us the proper resources and the new jobs and innovative solutions will take off.

“Republicans in Congress should heed the call of their party’s leader and make urgently-needed improvements of national infrastructure networks a top priority in early 2017.

“Despite a highly partisan political environment, Republicans and Democrats have routinely worked in a bipartisan manner to support infrastructure legislation. All sides should view a long-term infrastructure package as an opportunity for the two parties to come together and make meaningful progress for the American people.”

Other industry associations and organizations have published similar statements. The timing couldn’t be better for CONEXPO CON/AGG 2017, Las Vegas, Nevada March 7-11, 2017.

The U.S. construction industry added 19,000 net new jobs in November and has now added jobs for three consecutive months, according to analysis of U.S. Bureau of Labor Statistics data released today by Associated Builders and Contractors (ABC).

Industry employment is up by 2.4 percent on a year-over-year basis, considerably faster than the overall economy’s 1.6 percent job growth rate. Construction industry employment growth would likely be much sharper if more suitably skilled or trainable workers were available to fill available job openings. The skilled labor shortage appears to be impacting nonresidential activity more than residential. The nonresidential sector added 1,100 net new jobs in November, while the residential sector added 19,600 positions. Heavy and civil engineering lost 2,100 jobs for the month.

“The demand for construction talent was strong before the election, and the outcome has improved the near-term outlook for private and public construction activity,” said ABC Chief Economist Anirban Basu. “The implication is that demand for construction workers is positioned to remain high, which will translate into gradual reduction in industry unemployment and significant wage pressures.

“Some of these wage pressures are already evident,” said Basu. “Construction firms in the nation’s hottest markets, including New York, Seattle and Miami, report that in certain occupational categories, compensation is rising at a 10 percent per annum pace or more. This appears to be particularly true for construction superintendents and managers.

“Next year is shaping up to be a good one for both residential and nonresidential construction segments,” said Basu. “Of the two branches of the industry, nonresidential likely offers the larger upside. An infrastructure-led stimulus package would largely be oriented around nonresidential activities. Moreover, in certain markets, there is evidence that the apartment market is approaching saturation. Expected increases in interest rates next year would also tend to hit certain residential activities (i.e., single-family construction) more forcefully.”

The construction unemployment rate remained unchanged at 5.7 percent in November. One might have expected that this rate would have declined given the generally elevated levels of demand for construction talent. However, there are certain parts of the country that are softer economically, including many commodity-rich communities that have been impacted by lower oil and natural gas prices. Moreover, it is difficult to assess the skill level of jobseekers.

The unemployment rate for all U.S. industries fell to 4.6 percent, the lowest rate since mid-2007 and 0.3 percentage points below October’s rate. The labor force lost 226,000 persons for the month, but is still more than 2 million people larger than at the same time one year ago.

Following a surge in the third quarter in private nonresidential construction, the pace of spending slowed to start Q4. Spending on residential construction showed some signs of strengthening in the fourth quarter.

Private residential construction rose 1.6 percent with single and multifamily both posting 2.8 percent increases, while home improvement fell 0.6 percent for the month. The bounce back in private residential supports our view for a rebound in residential investment in Q4.

A rise in both federal and state & local construction are supportive of greater government investment in Q4.

Nonresidential construction spending totaled $699.7 billion on a seasonally adjusted, annualized basis in October, a 0.3 percent decrease from September’s significantly upwardly revised total, but an increase of 2.6 percent year-over-year according to analysis of U.S. Census Bureau data released today by Associated Builders and Contractors (ABC).

September’s nonresidential spending estimate was revised from $690.5 billion to $701.7 billion, a 1.6 percent increase. August’s estimate received a similar revision, increasing from $696.6 billion to $703.6 billion. Nonresidential spending is now 2.6 percent higher than at the same time one year ago.

“While the construction spending data remain challenging to interpret, the general story is still positive overall,” said ABC Chief Economist Anirban Basu. “Nonresidential construction spending is up by nearly 3 percent on a year-over-year basis. Certain segments are red hot, including the office and lodging segments, both of which have experienced more than 20 percent spending growth over the past 12 months. Investors, both domestic and global, continue to search for deals during a period of low global interest rates. Commercial real estate has emerged as one of the favorite destinations for investor capital, helping to raise property values and prompt significant numbers of construction starts.

“While certain private segments flourish, publically financed categories continue to languish,” said Basu. “This is particularly true in the public safety, conservation and development and sewage and waste disposal categories, all of which have seen year-over-year spending declines of 6.5 percent or more. The outcome of the election has lifted expectations for spending in many publically financed categories. Both major presidential candidates had discussed investing in infrastructure during their campaign. However, there was a conventional wisdom suggesting that divided government would be the most likely outcome, which would likely have translated into more stalemates and less infrastructure spending. With one party now controlling the U.S. Senate, U.S. House of Representatives and the White House, a meaningful infrastructure package may be more likely. While that will not affect spending numbers in the immediate near term, the longer-term outlook for infrastructure spending has brightened considerably since our previous report.

“In addition to the promise of augmented infrastructure spending, there are indications of corporate and personal tax cuts to come, increased defense spending, deregulation of the financial system, and lighter regulation of energy producers,” said Basu. “All of these policy shifts are consistent with greater construction spending going forward, at least for the foreseeable future. In other words, the 2017-18 nonresidential spending outlook has improved over the last several weeks. It remains to be seen how much the president-elect can accomplish over the next few months, and what affect that will have on the nonresidential construction segment of the U.S. economy.”

Infrastructure spending is widely known to boost economic activity. However, the fiscal multiplier tends to be much larger during recessions, suggesting the late-cycle lift could be less than originally anticipated.

Infrastructure Fiscal Multiplier Low During Expansions

President-elect Donald Trump has proposed an infrastructure program of $1 trillion over the next 10 years (the Trump transition website notes $550 billion.) The American Society of Civil Engineers (ASCE) reports that the nation’s infrastructure is in “poor” condition and would require an estimated $3.6 trillion by 2020 to maintain a state of “good” repair, with only about half the needed funds committed (top chart).

Although details of the infrastructure program have yet to be published, two of Trump’s advisers provided a proposal in October (Ross, Wilbur and Navarro, Peter, “Trump Versus Clinton on Infrastructure,” Oct. 27, 2016). The plan includes $167 billion in equity investment, which is almost 17 percent of the total package. The equity portion would be supported by a tax credit equal to 82 percent of the equity. The remainder of the plan would be financed by debt. Based on the structure, critics of the plan suggest that investors will have little “skin in the game.” There is also recent talk about an infrastructure bank, which was included in the

While we await the details, discussion has also been centered on the impact to overall economic growth. Academic research finds that infrastructure spending, especially highway funding, has a positive effect on real GDP growth, which can be seen in the first two years and then a larger second- round effect after six to eight years (Leduc and Wilson, 2012). In fact, based on Congressional Budget Office (CBO) estimates, the multiplier for infrastructure spending for the American Recovery and Reinvestment Act was larger than most other forms of government spending (middle chart). Literature also highlights the correlation between infrastructure spending and productivity growth in the U.S. and suggests that periods of weak public investment explains a good portion of the slow productivity growth (Aschauer, 1988) (bottom chart). These anticipated results are very promising, especially given slow productivity growth and low growth in potential output. However, the direct effect of infrastructure spending will be subject to long lags and will depend on the size of the fiscal multiplier.

A fiscal multiplier is the ratio of how much economic activity will increase for a unit of government spending. Studies show a wide array of multipliers based on a host of factors, with values ranging from 0.5 to 3.5 (Whalen and Reichling, 2015). The multiplier can also vary over the cycle. Research estimates a peak multiplier of 2.5 during recessions and 0.6 in expansions, with the gap due to stimulus crowding out private spending during multiplier for infrastructure spending is slightly less than two over a 10 year period (Leduc and Wilson, 2012), suggesting a $1.00 increase in spending raises output by roughly $2.00. That said, the infrastructure multiplier may be smaller during an expansion.

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